Fast binomial procedures for pricing Parisian/ParAsian options

Marcellino Gaudenzi () and Antonino Zanette ()
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Marcellino Gaudenzi: Universitá di Udine
Antonino Zanette: Universitá di Udine

Computational Management Science, 2017, vol. 14, issue 3, No 2, 313-331

Abstract: Abstract The discrete procedures for pricing Parisian/ParAsian options depend, in general, on three dimensions: time, space, time spent over the barrier. Here we present some combinatorial and lattice procedures which reduce the computational complexity to second order. In the European case the reduction was already given by Lyuu and Wu (Decisions Econ Finance 33(1):49–61, 2010) and Li and Zhao (J Deriv 16(4):72–81, 2009), in this paper we present a more efficient procedure in the Parisian case and a different approach (again of order 2) in the ParAsian case. In the American case we present new procedures which decrease the complexity of the pricing problem for the Parisian/ParAsian knock-in options. The reduction of complexity for Parisian/ParAsian knock-out options is still an open problem.

Keywords: Parisian options; ParAsian options; Tree methods; Binomial methods; Combinatorial formulas; 91G60; 60H35; 60C05 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10287-017-0278-5

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